In today’s article, we examine the SEC’s enforcement action against Wisdom Capital Management Group Ltd., an entity that claimed to be an Exempt Reporting Adviser (“ERA”) under the Investment Advisers Act of 1940 (“Advisers Act”). While ERAs are exempt from SEC registration, they remain subject to the SEC’s examination authority and must provide accurate, verifiable disclosures.

The Custody Rule provides that “it is a fraudulent, deceptive, or manipulative act, practice or course of business within the meaning of section 206(4) of the [Advisers] Act … for [a registered investment adviser] to have custody of client funds or securities unless” the adviser implements an enumerated set of requirements to prevent loss, misuse, or misappropriation of those funds and securities.